Deliberate omission of a statutory requirement to reduce or eliminate a tax liability.
It is not necessary that the conduct be underhanded or deceitful - any wilful evasion will suffice.1
For example, those participating in tax evasion may under-report taxable receipts or claim expenses that are non-deductible or overstated.
Individuals who deliberately conceal income (or businesses that deliberately conceal part of their sales) in order to pay less income tax are engaging in tax evasion. Workers in the underground economy and businesses that fraudulently claim tax refunds are also committing tax evasion.
The most typical example is a person who receives payment in cash and then omits to declare this income to the Government for taxation purposes.
The statutory basis for prosecution for tax evasion in Canada is at section 239(1) of the Income Tax Act (published at canlii.org/ca/sta/i-3.3) which, as of October 2007, described the prohibited conduct as follows, and explicitly including any related conspiratorial activity:
“Made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act....,
“To evade payment of a tax imposed by this Act, destroyed, altered, mutilated, secreted or otherwise disposed of the records or books of account of a taxpayer,
“Made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted, or assented to or acquiesced in the omission, to enter a material particular, in records or books of account of a taxpayer, (or)
“Wilfully, in any manner, evaded or attempted to evade compliance with this Act or payment of taxes imposed by this Act....”
A thorough historical record of the offence of tax evasion in Canada and at common law is at R v Cardoso (1999) 139 CCC (3d) 430 (Quebec Court of Appeal).
R v Cardoso also noted that:
“(T)he gist of the offence of tax evasion is the intentional commission of a fraud upon the public purse. That fraud need not involve artifice or cunning, although the presence of artifice or cunning will make it easier for a court to draw in inference of guilty intent.”
In Bursey v Bursey (1999, Newfoundland Court of Appeal) 47 RFL 4th 1, these words were used:
“Notionally, the words "avoid" and "evade" often are employed synonymously in everyday discourse. In the context of taxation, however, frequently these concepts are ascribed different connotations demarking the line between conduct which is legal and that which is not. It is well recognized that it is not considered untoward for one to avoid taxes by arranging one's affairs so as not to incur tax.
"On the other hand, purposely evading of taxes, known to be due and payable, connotes the taking of active steps to elude and shirk one's obligation to pay taxes which have been incurred and are due and owing.”
Tax evasion is a criminal matter.
In Canada, a judicial finding of tax evasion can be quite painful. Section 239(1) of the Income Tax Act sets out the penalty: “a fine of not less than 50%, and not more than 200%, of the amount of the tax that was sought to be evaded”.
In addition, the convicted taxpayer may be imprisoned for a period of up to five years.
Research and Further Reading:
1 R. v Klundert 242 DLR 4th 644 (2004)
Compare with tax amnesty and tax avoidance.